Africa finally part of the big picture

In Mozambique – a country many Australians would find hard to locate on a map – Sydney-based
Riversdale Mining
initiated a $US270 million ($288.8 million) capital investment this week in stage one of its Benga high-grade coking coal project with Tata Steel of India.

The Australian company plans, with its partners, to invest up to $US1 billion in the Benga project in three stages that envisage production of 20 million tonnes a year over the next decade or so.

Initial production is set to begin in 2011.

This is an ambitious undertaking by any standards, and reflects quickening interest by Australian companies in Africa, supported by more activist Australian government policy after years of neglect.

Parliament will turn its attention to Africa this coming week when the Joint Committee on Foreign Affairs, Defence and Trade begins hearings on the broad sweep of Australia’s relations with African countries.

Terms of reference extend from trade and investment to defence co-operation.

The Rudd government’s focus on Africa has drawn predictable media grumbling about Australia’s search for votes in its bid for membership of the United Nations Security Council, but a new African focus for Australian foreign policy has a wider dimension.

What is being corrected is years of indifference. The catalyst is the involvement in Africa of dozens of Australian resource and service companies. This is a case of business leading government.

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The general manager, international affairs, of Perth-based uranium miner
Paladin
, Greg Walker, talks about a “team Australia’’ approach to business in Africa that requires consistent effort by business and government.

“While we are relatively small players, there is huge potential for future development,’’ Walker says. “What’s become clear is the importance of a co-ordinated effort by business and government.’’

Paladin has operating uranium mines in Namibia and Malawi, the latter a $US200 million investment that represents that country’s first modern mining development.

The chairman of the Perth-based Australia Africa Business Council, Bill Repard, who is also publisher of Paydirt, a magazine that tracks Australian business involvement in Africa, says interest in the continent is “growing at an extraordinary speed".

Repard estimates that two to three Australian companies are setting up shop in Africa each month, taking numbers across the continent to about 200, with service companies following the miners. “What started in South Africa spread to southern Africa and now to West Africa,’’ he observes.

Official Australian government figures put Australian investment in Africa at $20 billion, but this almost certainly understates the depth of engagement. On the other hand, Australia is a minnow when compared with the United States, Japan, China and India, all of which have invested heavily in the energy sector across the continent – from north to south, east to west.

Africa’s importance as a resources player is defined by its position as home to the world’s largest deposits of platinum, gold, diamonds, chromite, manganese and vanadium. It also has some of the world’s largest deposits of iron ore, bauxite and copper, and supplies 12 per cent of the world’s petroleum.

The Australian government recently upgraded its Africa policy effort, establishing a separate Africa branch in the Department of Foreign Affairs and Trade (DFAT) under Justin Hayhurst, a former staffer of Foreign Affairs Minister Stephen Smith. Previously Africa, accounting for about one-sixth of the world’s population, came under a ragbag section that included the Middle East and South Asia.

DFAT officials admit that Australia’s representation in Africa is inadequate – it has only five missions in sub-Saharan Africa excluding Port Louis in Mauritius – but as one said: “We’re building on a low base.’’

These officials acknowledge that Australia’s new Africa focus is driven partly by a desire to secure United Nations votes for its Security Council bid, but they also note that Africa is becoming more important commercially and diplomatically by leaps and bounds.

African countries account for 27 per cent of the UN and World Trade Organisation memberships (53 of the UN’s 192 member states are African as are 42 of the WTO’s 153 members) and 37 per cent of the Commonwealth (of the Commonwealth’s 54 members, 19 are African countries).

This is a weighty presence on bodies that deal with issues ranging from the Doha trade talks to climate change.

Australian officials also make the point that African countries dominate the Group of 77 developing countries, the Non-Aligned Movement, and, within the WTO are key members of negotiating groups, including the African, Caribbean and Pacific Group, the African Group, the Cairns Group, of which Australia is convener, and the Group of 33.

South Africa is part of a new coalition of advanced developing countries, including Brazil, South Africa, India and China (BASIC), not to be confused with BRIC, which comprises Brazil, Russia, India and China.

Smith is pushing efforts to engage Africa, reflecting a Perth-based perspective that looks both east and west. As he told a Sydney University forum – Australia and Africa: Looking to the Future – last month: “From Perth, there is a somewhat different perspective on our region, seeing Australia both as a country of the Indian Ocean, as well as a Pacific nation.

“Australia is a continent and a country of over 20 million people. Africa is a continent of more than 50 countries and nearly a billion people. To prosper into the future, Australia, a great trading nation, cannot ignore this."

Smith is not the only player who is pressing an Africa agenda within the Rudd government. The Prime Minister’s senior foreign policy adviser, Philip Green, is an Africa hand, having served most recently as high commissioner in Pretoria and before that in Dar es Salaam, Lusaka and Nairobi.

In a speech in 2007– Africa’s Trajectory: Through the Long Lens – to the Lowy Institute, Green urged greater involvement to take advantage of opportunities that flowed from South Africa’s emergence from the “darkness of apartheid".

This, Green asserted, had two positive effects. “It focused minds in the continent on economic, rather than political objectives. And just as important; it released the economic potential of South Africa to invest in Africa’s productive sectors.’’

The Lowy Institute itself is playing a useful role in focusing attention on Africa, devoting resources to studies of Australia’s relations with Africa and convening panels in an attempt to develop a clearer-eyed view of risks and rewards in a raw business environment where political mishap cannot be ignored, and where corruption is endemic.

In the Lowy-commissioned Into Africa, authors Roger Donnelly and Ben Ford note that the picture for Australian companies is mixed.
Woodside
and
Rio Tinto
have had their fingers burned, Woodwide offshore in Mauritania where it was obliged to book a $US233 million loss, and Rio in Guinea where its plans to develop a large iron ore body were short-circuited by seemingly arbitrary presidential intervention.

“To make money, companies (and their financiers) need to manage their political risk carefully,’’ say Donnelly and Ford. “That, in turn, hinges on three things: being a conspicuously good corporate citizen, assessing and rating risk carefully, and insuring insupportable risks.’’

Lowy also sponsored a study of how Australia might better utilise its limited aid resources in Africa as part of an overall commitment to increase the share of overseas development assistance to 0.5 per cent of gross national income by 2015-16 (Australia’s aid contribution to Africa is miserly – 3.1 per cent of its 2008-09 overseas assistance budget or $116 million).

The study concluded that Australia should devote its aid efforts in areas where it enjoyed a “comparative advantage’’, namely sustainable agriculture and renewable energy.

If trade follows aid, the picture for Australia is quite promising. Exports to sub-Saharan Africa grew at an average of 15.4 per cent over 20 years to 2008-09 ($3.54 billion in the latest financial year), the fastest growing of all regional export markets, including North and South Asia. But keeping this in proportion, it represented a mere 1.6 per cent of total Australian exports.

Separate from trade flows themselves, the depth of Australian mining involvement is impressive. Mining projects in which Australian companies have a substantial interest include 47 across the continent, 22 of which are in South Africa.

Australian companies are also involved in seven refineries and smelters, five of which are in South Africa. DFAT has compiled an exhaustive list of Australian oil and gas companies whose involvement stretches from South Africa to Somalia and many places in between, including Swaziland, Gabon and Burundi. Among projects in less familiar territory are
Blackthorn Resources
’ Perkoa zinc mine in Burkina Faso,
Anvil Mining
’s Dikulushi copper-silver mine in the Democratic Republic of the Congo, and
Resolute Mining
’s Syama goldmine in Mali.

Judgments about Africa being a “hopeless’’ case now seem premature. While the global financial crisis knocked down African growth in 2009, the continent is recovering, and, by most measurements, is becoming more business-friendly. The World Bank Doing Business Report 2010, noted significant improvement.

The picture is mixed, but not without promise. As a senior adviser to Prime Minister Kevin Rudd told the AFR : “At last, they’re getting their shit together.’’